Revenge Travel Will Kickstart Recovery for Canadian Hotels

Canada’s hotel industry has been battered in the past year and a half and needs you to travel the country when it’s safe in order to turn things around. A full resurgence will be complicated by Canadian travelers’ desire to go abroad and more tightly controlled business travel budgets.

CBRE Hotels’ newly released outlook anticipates a slight recovery this year in revenue per available room, or RevPAR, forecasting it to rise 16% nationally to $50 (down from $106 in 2019). This will be driven primarily by an uptick in drive-to domestic leisure travel in and around major centres such as Toronto (where RevPAR is projected to rise 27%), Vancouver (+17%) and Montreal (+33%).

Domestic travel plays a key part in driving hotel demand in Canada, representing between 75% to 80% of overall tourism revenue most years. A higher level of domestic leisure activity could actually help the Canadian hotel industry in the short term if international travel remains limited by the pandemic. However, in the absence of large meeting, conference and international corporate and leisure business, Canadian hotel occupancy levels are forecast to be in the 38% range nationwide, versus 65% in 2019.

At these occupancy levels CBRE is forecasting only slight growth in the average daily rate (ADR) for the year, to $131 versus $163 two years ago. “Once the confidence is there, the more rate yield we can expect to see,” says CBRE Hotels Director Nicole Nguyen. “When we get closer to the 60% occupancy mark nationally, we will begin to see more significant ADR growth.”

While vaccination rates are rising and border re-openings are hopefully on the horizon, CBRE doesn’t expect RevPAR to return to 2019 levels until 2025.

Recovery Impacts

As with COVID itself, there are so many variables at play and the recovery could ultimately come together very differently than expected. The prolonged impact of the economic shutdowns may see businesses eager to get people back to work and back to travel as soon as possible, driving a more robust corporate travel recovery.

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One of the risks to the recovery of the Canadian hospitality industry is Canadians themselves. They love to travel and haven’t been able to do that in a meaningful way recently. However, they are usually quick to hop on planes and head for foreign destinations. By in large, Canadian’s have a strong desire to travel and the funds to do so. As we have seen in other countries, “revenge travel” is expected to propel the early recovery. On Memorial Day weekend many markets in the U.S. reported occupancy levels of 90%, better than or comparable to the same weekend pre-pandemic.

Open borders could produce a travel exodus “People have been at home for a year and a half, they’ve done the road trips,” Nguyen says. “The moment they’re vaccinated and can move around freely there is a strong chance that they will reschedule the all-inclusive trip to somewhere sunny that they had to cancel, will hop on a plane for Europe or head across the border. We may have a hard time keeping them at home.”

Even if Canadians do choose to travel within the country, there could be challenges in getting them to where they want to go. For example, many airlines have cut back on primary routes and in some cases eliminated secondary routes in order to adapt their business to the impacts of COVID. It may prove challenging to ramp everything back up quickly. “The ability of the airlines to re-engage all of that capacity in a short timeframe is uncertain,” Nguyen says. “How quickly they’re able to respond may factor into the recovery. ”

There is increasing pressure from hotel operators to reopen the U.S. border or at least have some visibility on what it will take to make that happen. The lack of certainty around the border is proving to be a serious threat for the meetings, convention and event industry, which is unable to book or confirm busines in Canadian cities with confidence. "Meeting, conference and event business provides a base for hotel operators to build from," says CBRE Tourism & Leisure Director Rebecca Godfrey. "But if this business is absent it presents a compression building issue, particularly in our urban core markets."

Increasing investment momentum

On the investment front, CBRE Executive Vice President Luke Scheer says there remains significant capital on the sidelines looking for opportunities to be deployed in the hotel space. “We have seen pent-up demand first-hand in assets we have been marketing thus far in 2021. Investors are actively looking to seize opportunities as we move forward in the recovery”

As fundamentals begin to improve, so too will investor confidence in pursuing and executing transactions in the hotel space. “We are also seeing increased interest in resort assets given the resiliency these properties have shown during the current environment,” Scheer adds.

“We are also encouraged by the continued interest from foreign capital as U.S. and International investors continue to view Canada as a highly sought-after market to invest in the hotel space."